Chipping away at global semiconductor supply chains

ON 7 October 2022, the US Bureau of Industry and Security issued new regulations on exports of semiconductors and certain semiconductor manufacturing equipment. The rules attempt to block Chinese access to high-end artificial intelligence chips through a combination of new controls on software, people, knowledge transfers, manufacturing equipment and US components integrated into foreign products.The new rules are a significant shift in an export control policy that the United States has been pursuing for nearly 30 years. The previous policy was designed to keep adversaries, primarily China, one or two generations behind the United States technologically. Under this policy, the United States would raise the level of controls as new technology emerged, before releasing older generations for export.In other words, the controls were a deliberate moving target. That had three effects. China was denied access to the most advanced technology. US companies were able to sell older technology to China and use the revenue generated for research and development. And the provision of older US technology to China reduced the incentive for the development of Chinese alternatives.Deteriorating relations between the United States and China as well as the realisation that the third point above had diminishing returns- China embarked on its own path of independent technology development many years ago-led to the new US rules being implemented. The main difference in the new policy is the creation of a technological line of control that the current US administration does not intend to move.The United States has shifted its policy from simply trying to keep China behind to actively seeking to degrade its military capabilities. Maintaining export controls at the same level regardless of future technology developments means that the universe of controlled items and technologies will become much larger over time. It also means that enforcement will become more difficult and the cost to US producers will increase.The short-term impact of the new rules appears to be fairly small for chip makers, since a relatively small number of chips were directly affected. But it has been larger for the equipment manufacturers, who have a significant market in China. Assessing the longterm impact requires examining three questions. What will be the effect of the new rules on US company revenue? Will the new controls accelerate China's policy of indigenous technology development? Will the new co